Parent Co. owns 75% of Sub Co. and uses the cost method to account for its investment. The following are summarized income statements for the year ended
December 31, Year 7. (Sub Co. did not declare or pay dividends in Year 7.)

Additional Information
On July 1, Year 7, Parent purchased 40% of the outstanding bonds of Sub for $152,500. On that date, Sub had $400,000 of 10% bonds payable outstanding, which mature in five years. The bond discount on the books of Sub on July 1, Year 7, amounted to $20,000. Interest is payable January 1 and July 1. Any gains (losses) are to be allocated to each company. Both companies use the straight-line method to account for bonds.
Required:
Prepare a consolidated income statement for Year 7 using a 40% tax rate.

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INCOME STATEMENTS-for Year 7 Parent $ 8,750 S 900,000 908,750 Sub Interest revenue Other misc. revenues 500,000 500,000 44,000 350,000 42,000 436,000 64,000 Interest expense Other misc. expenses Income tax expense 600,000 124,000 724,000 $184,750 Net income